The Chancellor George Osborne should be applauded for listening to
hard-pressed families and postponing the fuel duty increase

George Osborne’s welcome decision to scrap August’s planned 3p increase in fuel duty was the one item of good economic news amid the gloom yesterday. Public sector borrowing for May stood close to £18 billion – £3 billion more than had been forecast. This astonishing figure again confirmed how entrenched high levels of state spending have become. In addition, Sir Mervyn King, the Governor of the Bank of England, told the Commons Treasury committee that the country was not even halfway through the crisis that began in 2007. He said the prospect of another five years of slow – or no – growth had been heightened by the eurozone’s troubles and worrying signs of an economic contraction in Asia and America.

The Chancellor has made the right judgment in postponing the fuel duty increase. It will cost the Treasury money, but Mr Osborne said this would be fully funded by greater than expected savings in departmental spending. That is the correct approach and one that we have long advocated – easing the pressure on private sector wealth-creators by cutting deeper into wasteful government programmes.

Although oil prices have been coming down, family incomes have been falling faster. Cheaper petrol and diesel will therefore provide some relief for family budgets and act as a stimulus to spending on other goods. Businesses will also benefit, especially the haulage industry, where lorry owners would have faced an extra £1,200 annual bill had the duty increase gone ahead. There are longer-term issues that still need to be addressed about the complex way fuel is taxed. But for now, since it made no sense to load extra charges on to hard-pressed households and businesses, Mr Osborne should be congratulated for listening, rather than castigated for another Budget U-turn.